Big changes help Fazoli's reverse its recent decline

It's been a rough few years for Lexington-based restaurant chain Fazoli's. But recent months have seen the Italian quick-service company mark some major milestones in its plans to turn around its flagging fortunes and grow again.

Last November, it reversed a nearly three-year streak of seeing fewer customers come in the doors each month. And earlier this year, it opened its first new restaurants in three years based on the first completely new design since the company was founded in Lexington more than 20 years ago.

"We really do believe we can get back to opening a new unit every other week," said chief executive Carl T. Howard, who joined the company in 2008.

Howard, who previously was CEO of restaurant chain Damon's International, has spearheaded a number of changes in his tenure, including a menu overhaul and commissioning the company's new prototype restaurant design.

"Their CEO is doing all the right things to revitalize the brand," said Valerie Killifer, senior editor at the restaurant trade publication Fast Casual, based in Louisville. "He's very passionate about the brand and the direction he wants to take the brand, and I think that's very positive for Fazoli's."

Fazoli's was once a darling of the tough-to-describe segment of the restaurant industry that's a slight step above fast food.

The chain grew to as many as 400 or so stores, but it now finds itself at 242, spread over 27 states and the Philippines. For the fiscal year that ended in April, the stores generated $240 million in sales.

The brand stagnated, Howard said, for several reasons, including that past management became more focused on selling the company than evolving the brand.

The company eventually was sold to Sun Capital Partners, which also owns Boston Market, but there was an ultimately failed deal with McDonald's that had distracted management.

The company also pulled out of a couple of markets and had become slow to change its menu to evolve with people's tastes, Howard said.

Take, for instance, Killifer's first Fazoli's experience when she moved to Louisville several years ago.

"It was OK, but there just wasn't anything special about it," she said. "Now they're really trying to create something unique and different."

Big changes in menu

The first move made by Howard was to revitalize the menu. In February 2009, the company changed 40 percent of its menu. Just a few months later, it changed another 40 percent.

Consider the turkey Submarino. "It was a good sandwich, but there was nothing special about it," Howard said earlier this year as he sipped one of the company's then-new blue lemon ice drinks at its Hamburg location. "There was nothing in it that you couldn't easily make at home."

Now it has a baked, creamy sauce that stands out.

"We touched every bit of the product," he said.

With the menu revamped, the chain continued its work on the overall look of its locations. Earlier this year, it opened restaurants in Edwardsville, Ill., and Dayton, Ohio. The Dayton site sported an entirely new idea for the company: It's situated as part of a strip of stores instead of standing alone, and it doesn't offer a drive-through, a feature that many Fazoli's have relied on for years. Those generally accounted for 40 percent of a store's sales, Howard said.

He said the chain isn't necessarily moving away from stand-alone restaurants that have drive-throughs, but he thinks the "in-line store concept," as it's called, has potential and will be mostly what they use in the future.

The company expects to replace half of the lost drive-through business by offering curbside pickup. And the lack of a drive-through reduces the fixed costs of a restaurant, because it doesn't have to be as large.

"You can be just as profitable," said Dennis Lombardi, executive vice president of food-service strategies for design development company WD Partners in Columbus, Ohio.

New look, new focus

The Dayton restaurant also offered a new look that flies in the face of the dark Italian-themed interiors that the chain once favored.

"It's very bright and comfortable and welcoming," said Cathy Hull, the chain's chief marketing officer.

Evidence of that is in the "snack hour," the industry term for the time between lunch and dinner that is slower for restaurants. As Howard and Hull sat in the Hamburg location at 2 p.m., it was fairly empty.

At Dayton, though, "we're getting more of that snack hour business. ... The atmosphere is more conducive to that," Hull said.

The Dayton Fazoli's also is testing the use of traditional plates and glassware rather than disposable items, and the idea of having a server bring customers their food instead of having them pick it up at a counter.

Howard said the company is targeting several cities, including Lexington, where it employs more than 80 people at its headquarters operations, to open restaurants based on the new design. He expects the company to open five restaurants this year.

The short-term openings are expected to primarily be company-owned stores, but Howard said he expects franchisees to even out that growth in the next few years.

That growth assessment is one that Lombardi shares.

"All the right things are being done, and pretty much in the right sequences and pretty much to the right levels of intensity," he said. "I think you'll see the Fazoli's brand growing in the years ahead."

This story was originally published June 7, 2010 at 12:00 AM with the headline "Big changes help Fazoli's reverse its recent decline."